Study: Katrina rebuilding key factor in strong economy

There is both good and bad news in a recent report by the Institutions of Higher Learning (IHL) regarding the state’s economy. The good news is that the state’s economy appears to be growing at a relatively strong pace.

“However, the vast majority of the growth is Katrina rebuilding,” said a report published in the April 2007 edition of “Mississippi’s Business” written by Dr. Darrin Webb, a senior economist with the IHL Office of Policy Research and Planning. “Without this rebuilding, the state’s economy would be very weak. Many places in the state continue to struggle from job losses that occurred over the past several years.”

Webb said the state’s economy grew 2.7% over the six months ending in February compared to the same period the previous year. That represents the strongest increase in the index since the early 1990s. But much of the growth is attributed to Katrina rebuilding.

“For example, 45% of the new jobs created in Mississippi between February 2006 and February 2007 were in Harrison County,” Webb said. “Hospitality and leisure services and construction are the fastest-growing industries in the state in terms of job growth.”

Between February 2006 and February 2007, almost a third of the jobs created were in the leisure and hospitality industry. Construction jobs accounted for another 13%.

The Mississippi Index of Coincident Economic Indicators peaked in August 1999 and slowly declined over the next four years. The recovery since that time has been slow, but the index regained its previous peak in October 2006.

Webb said the first half of the current decade has been an especially challenging time of the state’s history, particularly in regards to jobs. Mississippi’s non-farm employment peaked in May 2000 and didn’t regain that same level until 80 months later in January 2007.

“Between 1979 and 1985, employment experienced a similar lull,” Webb said. “In that period, employment fell more dramatically but also rose more rapidly. As a result, employment regained its previous peak in 75 months. Because the state was more heavily reliant on low-skill manufacturing jobs, employment was especially vulnerable to the 2001 recession and the ‘jobless recovery’ that followed.”

Construction strong

While there has been concern about a slowdown in the national housing industry, Webb said evidence of a similar slowdown in Mississippi has not yet developed. It is expected that it will take up to a decade just to replace the homes, apartments, schools, churches and commercial buildings destroyed in Hurricane Katrina, so construction is expected to remain strong.

According to the U.S. Census, approximately 16,000 housing units in Mississippi had severe damage or were destroyed by Katrina. Another 45,000 homes in Mississippi had major damage. In the Gulfport-Biloxi-Pascagoula area, 3,132 permits for privately owned housing units were issued in 2004 compared to 2,474 in 2005 and 5,356 in 2006. From January through March, 1,802 permits were issued, which was 35% above what was seen during the same time period in 2006.

Lack of affordable insurance has hampered Coast rebuilding efforts. Some residents of other regions of the state have questioned the state subsidizing efforts to help rein in insurance rate increases on the Coast. But the economic report shows what Coast leaders were advocating when asking the Mississippi Legislature to help subsidize the state’s wind insurance pool. The economy of the Coast has a big impact on the state, said Chevis Swetman, president and CEO of The People’s Bank in Biloxi.

“One of the things we tried to identify once we started working on the windstorm bill was to show that the entire state is benefiting from the Katrina recovery,” Swetman said. “There is a lot of building going on. The large amount of sales tax being collected on the retail side is creating a tremendous revenue stream for the State of Mississippi. I believe it will continue. The eight- to 10-year build out rate on housing should fuel a tremendous amount of sales tax collections from the Katrina-affected areas.”

Off the Coast, too

The new construction isn’t limited to the three coastal counties. Hattiesburg has seen a large amount of new home building since the storm, and numerous housing projects are planned in the three counties just north of the coastal counties.

“I think Pearl River County is now one of the faster-growing counties in the state, if not the nation,” Swetman said. “What’s happening is there has been a lot of growth all over the state. There has been major growth outside the primary Hurricane Katrina areas, also. And I don’t see that abating anytime soon.”

Ups and downs

Manufacturing both in Mississippi and the U.S. continues to experience difficulties. The Institute for Supply Management Index of U.S. Manufacturing Activity has declined five of the past seven months. Webb said the figures reveal an industry that is struggling with various problems.

“Both production and new orders declined for the month, as did employment,” Webb said. “In fact, the employment index was at its lowest level since May 2005. Inventories are shrinking but remain at a high level due to excessive buildup over the past six months.”

Jay Moon, president and CEO of the Mississippi Manufacturers Association, said manufacturing is beginning to stabilize again.

“When we entered the new millennium, there was a real downturn in manufacturing in this country,” Moon said. “There were many reasons for that — structural changes in factories, offshoring and the introduction of new technologies into the marketplace. But it is beginning to stabilize now, and we are seeing manufacturing starting to expand again. What we are seeing all over the state is existing manufacturers are expanding. They are adding new production lines and hiring new employees. We are going into a good new period where we are going to see a lot growth in manufacturing.”

He said that with new technology, not as many jobs are created with manufacturing expansions. But the high-tech jobs that are created pay better.

Moon pointed to examples of major new industrial projects in the state — SeverCorr, Toyota, Eurocoper and the PACCAR engine plant — as evidence of a new day for manufacturing the state.

“We are seeing some real positive growth, and that is very encouraging,” Moon said.

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